Commercial property post COVID-19
Posted on 14 May 2020 by Jeremy Gruzewski
What does a post COVID-19 commercial property market look like?
As restrictions are lifted in Victoria this week, there appears to be a light at the end of the tunnel and hopefully a shift towards some normality. But the question really is what will be the new normal?
The past 6-8 weeks has been the biggest roller coaster ride we have seen. Thrust into a “rent relief” world and a mandatory code of conduct that has created a whole new world of negotiations for rent free, rent deferment and in some cases tenants making their own call and just refuse to pay rent at all. The impact on businesses from this shutdown and the flow on effect to the commercial property market is yet to be played out in full. The industry is really “making it up as it goes” as no one truly has the answers or experience to provide the road map.
The one certainty that we can all agree on is that businesses are extremely cautious about making decisions. Over the last six weeks, it has simply been easier to do nothing and hit the pause button and just wait and see what happens. As businesses start to open up and that light begins to brighten, we all hope that it will be life as we knew it. Our view is that while there will be an initial “sugar hit” we will be in for some challenging times. Here is our take:
- Expect an initial burst of activity as the Government begin to relax community and business trading conditions in the coming months.
- We do not expect businesses to perform at pre-COVID19 levels.
- The retail sector will see vacancies rise.
- Vacancy periods averaged 5.5 months for our leasing stock – expect this average to increase to about 8-9 months.
- Retail tenancies may need to be re-aligned to an office, service retail or in the extreme, residential use.
- The office sector will see businesses re-assess their space needs immediately due to flexible arrangements with employees working remotely. The goal will be to maintain productivity and reduce occupancy cost overheads.
- The industrial sector will be the least impacted.
- Specialist sectors (those considered ‘essential’) such as service stations, medical/pharmacy, liquor, supermarkets, and childcare should rebound considerably better without necessarily performing at the same levels as pre-COVID19.
The good news is that while enquiry is lower than normal it is starting to flow through again. As business realigns its strategies and the way commercial space is used as we move into this new world property owners need to be ready.
Be up to date with current legislation, make amendments to leases that accommodate any lease negotiations and stay in touch with current trends.
Buckle up, it is going to be an exciting ride. I am sure we will look back at this time in the near future and reflect on exactly how unique the experience has been.
Director of Agency